Breaking the monopolistic stranglehold of national carriers in Asia has never been easy and, for Asiana Airlines, playing second fiddle to Korean Air (KAL) for the past eight years has proved to be particularly hard going. This situation may be about to change though, as Asiana embarks on an ambitious multi-billion-dollar spending spree which will more than double the size of its fleet of aircraft by 2005.
Asiana has signed purchase agreements for up to 76 new narrowbodied and widebodied aircraft since September 1996. While deliveries are spread between 1998 and 2005, the number of orders and options involved is remarkable for an eight-year old carrier whose total fleet amounted to only 45 aircraft at the end of 1996.
Under South Korean law, an airline must first seek informal and formal approval from the ministries of trade and finance before any such large deal can proceed. The first stage is considered the more crucial of the two. Asiana has already received both stamps of approval for its purchase of 18 International Aero Engines V2530-powered Airbus Industrie A321-100s, on six of which it has cancellation rights.
A larger follow-on order for 18 Airbus A330-200/300s plus ten options, 15 Boeing 777-200/300s and five options, three 747-400s and three options, and two 767-300s and two options, has still to be fully ratified. "We've already got informal approval, but, before we can announce, we have to get formal approval," explains Asiana principal advisor Yong Tae Park, who does not anticipate any problems.
The size of order resulted in a particularly bruising battle between the three main engine suppliers, with the level of concessions climbing by over 90% towards the close. The lion's share in the end went to Pratt & Whitney, with Asiana selecting PW4164/4168s for the A330-200/300 and the PW4090/4098 for the 777-200/300. General Electric was the runner-up, with CF6-80C2s selected for the 747s and 767s.
The decision to eventually replace Boeing 737-400/ 500s with the A321 was "... because it has a better performance and seat-kilometre costs on our domestic routes," says Park.
Most of Asiana's 22 737s are leased in, and that fleet is gradually to be scaled down as aircraft are returned to lessors, so that they will be completely phased out of service by 2010. Its 767 fleet will similarly be reduced in number from 1999 onwards as deliveries of the larger A330s and 777s begin.
Asiana's future success will ultimately be determined by how much international traffic it manages to wrest from KAL. While the carrier now operates 48 weekly flights to eight destinations in the USA, including Los Angeles, New York and San Francisco, it operates only twice a week to Brussels and Vienna.
The problem which Asiana faces in expanding internationally is typified by its experience with the Seoul-Frankfurt route, which, until recently, fell short of the Government's minimum traffic threshold of 210,000 passenger a year for dual-carrier designation. "We've strongly suggested that the Government should change this rule," says a diplomatic Park.
With the growth in traffic between South Korea and Germany, Asiana has now won permission to compete against KAL and plans to launch a twice-weekly service from May. "It's not enough," complains Park, "but we hope it will gradually increase. Next, we're aiming to go to Paris and London, but this is also subject to air-service agreements being revised."
Other new destinations planned for 1997 include Fukushima, in Japan, and possibly Istanbul and New Delhi, but KAL has also set its sights on these. Asiana is considering pioneering a route to Poland, where South Korean industry has invested heavily, as well as re-opening a link between Seoul and Taipei in Taiwan.
Asiana's wider international aspirations hinge on the opening of the new Inchon Airport in 2001and the Government's plan to make Seoul a North-East Asian air-transport hub. Asiana, along with its associate companies in the Kumho Group, is investing heavily in the airport, including building a two-bay 747 maintenance hangar and two cargo terminals.
The airline's longer-term ambition is to go public, and progress has been made in recent years to get the company in better financial shape. Before a float can proceed, South Korean regulations first require a company to have been profitable for three consecutive years, to be free of debt and able to pay dividends.
After accumulating losses of more than $250 million in its first five years of operations, Asiana finally made a net profit of $37 million in 1994 on the back of a $993 million turnover. The airline made a further $38 million profit in 1995 and had been projecting a $50 million return for the last year. Exchange-rate fluctuations and rising oil-fuel prices, however, have caused the airline to lower its expectations.
"We plan to go public by 2000, but this could now be delayed by three or four years," cautions Park. The outlook for Asiana remains bright, however, with continued strong traffic growth and load factors topping 72% for international flights and 80% on domestic services. The airline marked its eighth anniversary at the end of 1996 by carrying its 10 millionth passenger, a feat which Asiana proudly points out took KAL 20 years to achieve.
Source: Flight International